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Martin Keller-Ressel (TU Vienna)
Wednesday 18 June 2008, 14:15-15:00
Moment explosions and long-term behaviour of affine stochastic volatility models
- đ¤ Speaker: Martin Keller-Ressel (TU Vienna)
- đ Date & Time: Wednesday 18 June 2008, 14:15 - 15:00
- đ Venue: MR14, CMS, Wilberforce Road, Cambridge, CB3 0WB
Abstract
We consider a class of asset pricing models, where the risk-neutral joint process of log-price and its stochastic variance is given by an affine process in the sense of Duffie, Filipovic, and Schachermayer. First we obtain conditions for the price process to be conservative and a martingale. Then we present results on the long-term behavior of the model, including an expression for the invariant distribution of the stochastic variance process. We study moment explosions of the price process, and provide explicit expressions for the time at which a moment of given order becomes infinite. We discuss applications of these results, in particular to the asymptotics of the implied volatility smile, and conclude with some explicit calculations for the Heston model without and with added jumps, a model of Bates and the Barndorff-Nielsen-Shephard model.
Series This talk is part of the Probability series.
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